Thursday, May 31, 2012

I got sidetracked as I often do, reading the Climate Progress thread that Eli referenced, into looking at a discussion about whether GHG emissions embodied in the production of imported products should go into the sinner's file of the importing nation.

The question is a truly exciting one of cost accounting. In theory it doesn't really matter who you allocate the carbon cost to, as long as you allocate it to someone, you don't double count or undercount, and you keep the method consistent. That's Coase Theorem for you - whoever's responsible for fixing the problem will be forced to put up the money to fix it. So maybe you could choose to say the nation where the end user is gets the full freight.

Except it has some problems, especially when it concerns trade between sovereign nations. For one thing, definition of end product could be hard. A factory built to manufacture widgets for export - is the factory an end product or added to the emission of widgets? An American reads a newspaper and then tosses it into a bin, where it gets shipped off to China for recycling. Who's responsible for which or all emissions? It's easier to avoid these games and just count emissions where they become airborne. More importantly, it could be a lot harder to track emissions in someone else's country and use legal force to ensure that country undertakes the conservation techniques/renewable energy/carbon sequestration that you're paying them to do.

The exporting country is getting paid for the product they export - if they internalize the externalized carbon cost of production that's an appropriate charge to bear. Most countries prefer to be exporters rather than importers, so let the exporters pay for their pollution costs.

None of this denies the reality that China's emissions are (partly) why developed countries aren't even worse. And Americans should fight coal exports to China just because it's a really bad idea, not because of carbon accounting.

UPDATE: I forgot to add why electricity is different - it's such a close connection between buyer and seller that I think it's fair and practicable to allocate emissions to the buyer as much as the seller, and give the buyer incentive to buy from somewhere else. Electricity doesn't have to be an exception, but it could be an exception.

12 comments:

The point is that if you are going to have a carbon tax it has to be international, otherwise some countries will be able to trade unfairly by setting their carbon tax at a low level. From what I hear, the US is already doing this by subsidising the price of oil.

In other words you need a global government, or at least international agreements, if you are going to deal with global warming. Since that is unacceptable to the US and China,the two biggest polluters, then we are all doomed :-(

Nations wishing to make major progress on decreasing greenhouse gas emissions should introduce emission taxes on all products. These taxes should be levied on imports as well as domestic goods at the point of sale, and should displace other taxes, such as VAT, sales taxes, and payroll (e.g. social security, health care) in such a way that tax revenues are constant, and distributed equitably.

These should be introduced as an Emissions Added Levy(avoiding the bad jokes). EAL would be imposed on sale for emissions added in the preceding step and inherent to the consumption of the product, as would be the case for heating oil and gasoline. Manufacturers would pay the EAL on electricity they bought, and incorporate this and the levy on emissions they created into the price of the product they sell.

Imports from countries that do not have an EAL would have the full EAL imposed at the time of import.

Nations wishing to make major progress on decreasing greenhouse gas emissions should introduce emission taxes on all products. These taxes should be levied on imports as well as domestic goods at the point of sale, and should displace other taxes, such as VAT, sales taxes, and payroll (e.g. social security, health care) in such a way that tax revenues are constant, and distributed equitably.

These should be introduced as an Emissions Added Levy(avoiding the bad jokes). EAL would be imposed on sale for emissions added in the preceding step and inherent to the consumption of the product, as would be the case for heating oil and gasoline. Manufacturers would pay the EAL on electricity they bought, and incorporate this and the levy on emissions they created into the price of the product they sell.

Imports from countries that do not have an EAL would have the full EAL imposed at the time of import. "Simple Plan solves all

The Coase Theorem says that regardless of how the "resource" (in this case, the right to clean air/the right to pollute) is allocated the final environmental outcome will be the same... but the distributive effects can be very different!

Having said that, I agree that the simplest thing to do is just tax CO2 emissions at the source. In fact, I would go further, and say CO2 should be taxed at the mine-mouth/well-head (except for natural gas, where there are a lot of mom and pop operations, so the natural gas distributor is a better place), with some additional policies in place to deal with land use change, landfill methane, and so forth.

The problem, as Alastair notes, is that such a policy needs to be global. But at least, if it is tax-based, it isn't a cap on developing nation emissions, and the money stays domestic, so I see it as a lower barrier than a cap-and-trade approach. And in a really ideal world, the industrialized world would subsidize the developing world to encourage them to join (either through CDM/JI type efforts, or a straight-up monetary transfer), and penalize non-participants through border taxes.

Note that it would be REALLY hard to do a good carbon-footprint border tax, but that would be ideal.

Alastair - I used to strongly support a limited international government, like the European Union with less red tape and more democracy. I still think it's a good idea, but not going to happen in my lifetime.

Border duties on nations that don't control emissions are the next best thing, and we need to start figuring out how that works with international trade law.

I think the planned requirement for carbon allowances on flights to and from the EU are a great idea, except that spending all the resulting money on projects internal to the EU is a bit piggy.

The EU is trying to become a United States of Europe, but the UK has successfully blocked that ambition. The right wing of the Conservative Party is no less against big government than the Tea Party. For Washington read Brussels.

What we need is a United States of the World but as you say it is even less likely to happen than a United States of Europe. But even if we got that the Senate of the US of W would probably vote down any new Kyoto Treaty. They would still be only be politicians.

Just look what has happened in Egypt. The demonstrators thought that if the got democracy then they would have a say in running the country. But now they have found that democracy is about everyone else having a say!

I thought that a carbon tax was the answer until I realised that the modern economy is based on burning cheap fossil fuels. If the government spends the tax then it will just trickle down into the burning of more fossil fuels, and achieve little.

For instance, if they spend it on better Obamacare, then all that happens is that more doctors and nurses can drive in a large staion wagon each weekend to their beach house where they can spend their time water skiing and power boat racing.

If the government doesn't spend the tax, then the removal of the money from the economy (global or national) will lead to economic recession and austerity. That will lead to the emergence of Fascist governments as is happening in Greece today.

"“It’s important that those who consume the products being made all around the world to the benefit of America — and it’s our own consumption activity that’s causing the emission of greenhouse gases, then quite frankly Americans need to pay for that,” Commerce Secretary Gary Locke told the American Chamber of Commerce in Shanghai."

"As noted by Stern (2007), climate change represents the greatest market failure the world has ever seen. The case for action on climate change is clear. By putting a price on carbon, individuals and businesses take into account the costs of their actions that are borne by society at large. In and of itself, the introduction of a carbon price is a global economic reform where the benefits far outweigh the costs.

Public commentary surrounding carbon pricing is dominated by a discussion of the financial impacts and costs and rarely the benefits. Surprisingly, little attention has been given to the opportunities carbon pricing presents for tax reform. An important element of carbon pricing discussed extensively by one of the pioneers of climate change modelling William Nordhaus is the opportunity to improve the efficiency of the tax system through replacing highly distorting taxes by a price on carbon."

Alistar, a carbon tax encourages choice of low carbon options over high carbon ones. Such as people to sweeping with brooms rather than using petrol powered blowers, encouraging having a more local holiday with more eating out rather than the very long air flight holiday. Obviously it also encourages purchase of low carbon direct alternatives - green power, bio fuel.

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Eli Rabett

Eli Rabett is a not quite failed professorial techno-bunny, a chair election from retirement, at a wanna be research university that has a lot to be proud of but has swallowed the Kool-Aid. The students are naive but great and the administrators vary day-to-day between homicidal and delusional. His colleagues are smart, but they have a curious inability to see the holes that they dig for themselves. Prof. Rabett is thankful that they occasionally heed his pointing out the implications of the various enthusiasms that rattle around the department and school. Ms. Rabett is thankful that Prof. Rabett occasionally heeds her pointing out that he is nuts.